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Russia Drafts Law Limiting Foreign Investment

Last Updated: November 01, 2009 2:32 PM

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Russia Drafts Law Limiting Foreign Investment

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The lower house of Russia's parliament, the Duma, passed legislation Friday limiting the ability of foreigners to invest in industrial sectors considered as strategic. Colin McCullough reports for VOA from Moscow this came shortly after the Russian government announced the arrest of two Russian-Americans on charges of industrial espionage.

The Duma passed a bill restricting foreign investment in 42 sectors labeled strategic, including the manufacture and sale of military hardware, the nuclear industry, the extraction of mineral resources and mass media.

The bill says that any foreign private investor wanting to buy more than a 50 percent share of a company in any of the designated sectors will need approval from a commission composed of economic and security officials.

Foreign state-controlled companies will have to go through the same procedure if they want to acquire more than a 25-percent stake in a Russian company on the list.

The measure still needs upper house approval and the president's signature.

Nikolai Petrov, a scholar at the Carnegie Moscow Center, tells VOA the bill reflects a dramatic change from 10 years ago when Russia actively sought foreign investment. He says state control is key to industrial policy in contemporary Russia.

Petrov says the law adopted by the Duma is one in a series of measures aimed at imposing more stringent conditions on foreign investment in industries the government wants to keep under control.

The bill was approved as one of Russia's largest foreign companies came under intense state scrutiny.

Earlier this month, two Russian-American brothers were arrested on charges of industrial espionage. One was identified by the FSB -- Russia's state security service -- as Alexander Zaslavsky, a member of the British Council alumni club. The other, Ilya Zaslavsky, was a manager of the joint Russian-British venture, TNK-BP.

Russia's state news agency, Interfax, quoted the FSB as saying the suspects were collecting classified information for a number of foreign oil and gas companies.

Russian authorities also raided the offices of TNK-BP Wednesday, seizing documents and files. In an online statement, the company said it operates strictly within the law.

Nikolai Pakhomov is an independent political columnist based in Moscow. He says industrial espionage among competitors is not uncommon.

He says he does not think one should dramatize this event. He says industrial espionage and sharp competition between government sections of different companies is a frequent occurrence.

TNK-BP faces additional problems. On Friday, Russia's natural resource protection agency, Rosprirodnadzor, announced it would inspect Samotlor, the largest oil field in Siberia run by TNK-BP.

Leading the inspection will be Oleg Mitvol, who also investigated Royal Dutch Shell for its environmental violations in 2006 on the site of its Sakhalin-2 project.

The company sold control in the $22-billion project to state run natural gas company, Gazprom, and the investigation ended.

Yevgeny Volk, manager of the Heritage Foundation in Russia, says the probe has less to do with ecology and more to do with economics. He says it is part of the government effort to gain control over Russia's natural resources.

Volk says this is how Russia's foreign policy elite is striving to gain control over the most profitable area of the Russian economy. He says the sectors of the economy involving arms, natural resources and oil are very attractive to the government and need to be controlled.

The charges against TNK-BP are coming during a transition period in the Kremlin and only weeks before the inauguration of President-elect Dmitry Medvedev on May 7th. President Vladimir Putin is expected to assume the role of Prime Minister. Currently, as First Deputy Prime Minister, Mr. Medvedev is also chairman of the board of Gazprom.

Yevgeny Volk says the actions against TNK-BP are indicative of the Kremlin's internal politics. He adds that this is likely a way for those in the Putin administration to solidify their influence before the May transition takes place.

Volk says the the Kremlin is trying to strengthen its power before Medvedev's arrival.

Russia's oil and gas companies have played a vital role in the country's recent economic boom. Though estimates vary, one study by the World Bank and the IMF concluded Russia's oil and gas sector generated 64 per cent of the country's export revenues in 2007.